IDEAS home Printed from https://ideas.repec.org/p/ran/wpaper/242.html
   My bibliography  Save this paper

The Retirement-Consumption Puzzle Anticipated and Actual Declines in Spending at Retirement

Author

Listed:
  • Michael D. Hurd
  • Susann Rohwedder

Abstract

The simple one-good model of life-cycle consumption requires “consumption smoothing.” However, British and U.S. households apparently reduce consumption at retirement and the reduction cannot be explained by the life-cycle model. An interpretation is that retirees are surprised by the inadequacy of resources. This interpretation challenges the life-cycle model where consumers are forward looking. However, data on anticipated consumption changes at retirement and on realized consumption changes following retirement show that the reductions are fully anticipated. Apparently the decline is due to the cessation of work-related expenses and the substitution of home production for market-purchased goods and services.

Suggested Citation

  • Michael D. Hurd & Susann Rohwedder, 2005. "The Retirement-Consumption Puzzle Anticipated and Actual Declines in Spending at Retirement," Working Papers 242, RAND Corporation.
  • Handle: RePEc:ran:wpaper:242
    as

    Download full text from publisher

    File URL: https://www.rand.org/content/dam/rand/pubs/working_papers/2005/RAND_WR242.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Robert B. Barsky & Miles S. Kimball & F. Thomas Juster & Matthew D. Shapiro, 1995. "Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Survey," NBER Working Papers 5213, National Bureau of Economic Research, Inc.
    2. James Banks & Richard Blundell & Tanner, Tanner, 1995. "Is there a retirement-savings puzzle?," IFS Working Papers W95/04, Institute for Fiscal Studies.
    3. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : II. New directions," Journal of Monetary Economics, Elsevier, pages 309-341.
    4. Banks, James & Blundell, Richard & Tanner, Sarah, 1998. "Is There a Retirement-Savings Puzzle?," American Economic Review, American Economic Association, pages 769-788.
    5. Hamermesh, Daniel S, 1984. "Life-Cycle Effects on Consumption and Retirement," Journal of Labor Economics, University of Chicago Press, vol. 2(3), pages 353-370, July.
    6. John Ameriks & Andrew Caplin & John Leahy, 2007. "Retirement Consumption: Insights from a Survey," The Review of Economics and Statistics, MIT Press, pages 265-274.
    7. F. Thomas Juster & Richard Suzman, 1995. " An Overview of the Health and Retirement Study," Journal of Human Resources, University of Wisconsin Press, vol. 30, pages s7-s56.
    8. B. Douglas Bernheim & Jonathan Skinner & Steven Weinberg, 2001. "What Accounts for the Variation in Retirement Wealth among U.S. Households?," American Economic Review, American Economic Association, pages 832-857.
    9. Robert B. Barsky & F. Thomas Juster & Miles S. Kimball & Matthew D. Shapiro, 1997. "Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Study," The Quarterly Journal of Economics, Oxford University Press, pages 537-579.
    10. Eric Maskin & Yingyi Qian & Chenggang Xu, 2000. "Incentives, Information, and Organizational Form," Review of Economic Studies, Oxford University Press, pages 359-378.
    11. Michael D. Hurd, 1993. "The Effect of Labor Market Rigidities on the Labor Force Behavior of Older Workers," NBER Working Papers 4462, National Bureau of Economic Research, Inc.
    12. B. Douglas Bernheim & Jonathan Skinner & Steven Weinberg, 2001. "What Accounts for the Variation in Retirement Wealth among U.S. Households?," American Economic Review, American Economic Association, pages 832-857.
    13. John Ameriks & Andrew Caplin & John Leahy, 2007. "Retirement Consumption: Insights from a Survey," The Review of Economics and Statistics, MIT Press, pages 265-274.
    Full references (including those not matched with items on IDEAS)

    More about this item

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ran:wpaper:242. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Benson Wong). General contact details of provider: http://edirc.repec.org/data/lpranus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.